When you decide to open your own business, it seems like there are a million questions coming at you at once. Where to locate? How much inventory to purchase? What color will the interiors be? How many staff to hire? Another important question is what types of insurance coverage do you need. While premiums for your business-related policies may seem immovable, with a little planning, they may not be.
The key here is to understand how insurance companies determine premiums. The Insurance Information Institute (www.iii.org) has some good advice for every fledgling entrepreneur regarding these factors. Here is a condensed version:
Type of business — How is the business legally structured? Are you a sole proprietor or an incorporated or limited liability company (LLC)? The less you are personally liable for the better.
Location, location, location — Businesses located in high-crime areas, or in areas that are susceptible to severe weather, such as flooding or tornadoes, will pay higher rates. If you have a choice as to where to locate your business, ask your agent for several quotes for the different locations you’re considering.
Facility size and characteristics – The larger the building, the more it will cost to insure. The building material and age of the wiring, plumbing, roof, etc. is also a consideration. State-of-the-art fire alarms, sprinkler systems and proper exits can save you money.
The value of the business — When applying for Business Interruption Insurance (BI), which covers lost net profits and continuing expenses after a catastrophe, the amount of coverage and, therefore, the premium costs will be based on your estimate of the company’s future revenues and expenses.
Number and training of employees — The more workers, the higher your workers compensation premiums will be. However, providing proper job training and safety rules can help reduce the insurance costs—in many cases, a well-trained worker is less likely to have an accident.
The easiest way to obtain all the coverage you need at premiums you can afford is by involving your insurance professional in your business planning. They can tell you what can be done to lower your payments while making sure you are covered on all fronts.